1. Calculate the cot of preferred stock of TC Ltd given the following information: - New...
1. Calculate the cot of preferred stock of TC Ltd given the following information:
- New perpetual preferred stock with a par value of $30 per share can be sold at a price of $29.10 per share. It is estimated that the preferred dividend would be 10%
- The firm can issue new common stock with a price of $48.13, and a dividend in year 0 of D0 = $2.75. The firm's growth rate is 5%.
A. 10.00%
B. 10.31%
C. 11.00%
2. Pacific Airline is a private company with a debt-to-equity ratio of 0.25. One of its rivals, Quartz Airline, is listed on the stock exchange. Quartz Airline has no debt and its beta is 0.9. Tax rate is 20%. What would be an appropriate estimate of Pacific Airline's beta?
A. 0.91
B. 1.08
C. 1.11
Homework Answers
1.
=Preferred par value*Preferred Dividend/Preferred share price
=30*10%/29.10
=10.31%
2.
=unlevered beta*(1+(1-tax rate)*D/E)
=0.9*(1+(1-20%)*0.25)
=1.08
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